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IRS warns of tax troubles due to the cliff

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As many as 100 million taxpayers could face refund delays and filing problems if fiscal cliff negotiations fail to adjust the alternative minimum tax exemption before the end of 2012, says Internal Revenue Service Acting Commissioner Steve Miller.

In a Dec. 19 letter (.pdf), Miller said that 80 to 100 million taxpayers would be unable to file taxes while the IRS reprograms its tax processing systems to take into account the expiration of a temporary measure that adjusts the AMT exception for inflation. The exception isn't automatically indexed, but since Congress has always approved each year a manual update, IRS system maintenance has a year-to-year assumption that Congress will make that adjustment.

If it's not made this year, the magnitude and complexity of system adjustments might mean that most taxpayers may not be able to file their 2012 tax returns "until late in March of 2013, or even later," Miller said. An earlier IRS estimate that 60 million taxpayers might be prevented from filing while the tax agency reprograms its systems didn't take into account the full impact of "policy uncertainty on the upcoming tax filing season," Miller added.

Not adjusting the AMT exception could also raise taxes for 30 million Americans the AMT isn't intended to reach, Miller said. The 2011 filing year inflation update set exemption amounts at $74,450 for joint filers and $48,450 for single taxpayers; without an update for the 2012 filing year, the exception would drop to $45,000 for joint filers and $33,750 for single taxpayers.

However, the cooperation that seemed to be building between House Republicans and the Obama administration in fiscal cliff talks has suffered a setback with Republicans favoring a "Plan B" that the White House has threatened to veto.

Plan B would raise taxes on households making more than $1 million a year but extend the Bush tax cuts for all lower incomes. Plan B does not address sequestration or lapsing unemployment insurance.

The White House wants taxes to rise on household incomes above $400,000 a year, a concession from a $250,000 family income threshold. "What separates us is probably a few hundred billion dollars," said Obama during a Dec. 19 press conference.

For more:
download Miller's letter (.pdf)
read the White House statement on Plan B

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